U.N. Sales Convention Differences with the UCC (Part 3)

November 18, 2010, 4:09 PM

In this final posting in a series on the U.N. Sales Convention, here are two other significant differences between the Sales Convention and the UCC:

Standards for Performance. In cases where the seller has not delivered its product in the promised condition or within the promised time period, the Sales Convention gives less leverage to a buyer who might be inclined to reject the nonconforming delivery and cancel the contract. Under the Sales Convention, the buyer may cancel or "avoid" the contract only if the seller's misstep amounts to a "fundamental breach" of the contract. What is a "fundamental breach"? The Sales Convention describes it as default that substantially deprives the buyer of the value it had the right to expect under the contract. Thus, the Sales Convention deviates from the "perfect tender" rule under the UCC.

Further, in the case of late delivery, the buyer has the right under the Sales Convention to tender a "nachfrist" notice to the seller under which the seller is permitted a reasonable amount of additional time in which to perform its obligations. If the seller's breach continues beyond the reasonable time period stated in the nachfrist notice, then the buyer will be entitled to avoid the contract, even under the Sales Convention, as having been "fundamentally breached" by the seller. Consider the potential jeopardy to a U.S. importer of components from a foreign contracting state. If the U.S. importer plans to incorporate those components into a finished product which is to be sold domestically (and therefore governed by the UCC), the importer might eventually face quite a quandary: i.e., late delivery of the essential component might not constitute a "fundamental breach" by the foreign supplier under the Sales Convention, but the U.S. importer may be in default of its "perfect" delivery obligations to its domestic customer under the UCC.

Remedies.In contrast to the UCC, the Sales Convention provides for "specific performance" as a primary remedy for non-performance by the seller or buyer. Such a decree compelling contract performance could be catastrophic for a seller which has defaulted under the contract because of a huge spike in its raw material costs. However, a court may deny specific performance, even under the Sales Convention, if the domestic law of the court hearing the case would not grant such an extreme remedy. Thus, it may be important to win the arm-wrestling match in negotiations over the contract's choice of venue clause. --Charles V. McPhillips